Business loan

7 questions you should ask before applying for a small business loan

Reading time: 3 minutes

As a small business owner, you always have access to a financial life jacket when you need it. Maybe you’re hoping to support your business’ cash flow during the low season, or you’re hoping to launch a new product or branch. Whatever your needs, small business loans are widely available to help you reach your financial goals. That said, there are a few questions you should ask yourself before signing the loan application.

Why do I need a business loan?

You have already determined that you need a small business loan. The next step is to explain why you need it.

Knowing the purpose of the loan is the key to answering most other questions. Determine if the need is short-term or long-term. If the purchase is for inventory that you plan to sell as soon as possible, a longer-term loan may not be suitable for your situation.

How much money do I need?

You only want to borrow what you really need. Borrowing more than you need will incur costs that may not be offset by the income generated from the use of the loan. Knowing the amount needed also helps you select a lender since some lenders cater to small businesses at specific prices.

How soon do I need the funds?

If a new customer’s account requires you to have additional equipment or resources, you will need the loan as soon as possible. Since time is usually of the essence when obtaining funds, choosing a lender who can speed up the paperwork is often in your best interest.

What loan should I get?

Lenders are online or physical, and loans can vary in duration and terms. Think about the loan features you need and find a loan and lender that best suits your preferences.

Can I get an SBA loan?

The loans from the Small Business Administration are generally longer and less interesting. This is a loan with specific requirements, so check that you can meet them before applying.

To qualify, one needs an annual income of $180,000 or more, at least four years in business, a credit score of 680 or better, and documents, including corporate debt scheduleprofit and loss statements and tax returns.

What is my credit rating as a business?

You should keep an eye on your business credit score. Those who do tend to be more likely to be approved for a small business loan, perhaps because they are more conscious of their finances. If your credit score isn’t good, you can improve it in about six months.

Also track your personal credit score. According to statistics, the lower your personal credit score, the less you will qualify for a business loan. Remember that your loan score drops faster than it rises. Good long-term financial responsibility is the best way to improve your scores.

How much will the loan cost me?

All Cost of the loan includes several factors:

  • Costs
  • Interest rate
  • Penalties
  • Director

The APR (annual percentage rate) usually includes all fees. Calculating the final cost based on the principal and interest amount you need to pay is essential before signing a loan. Interest rates are important, but the term of the loan is also a factor. If you don’t take the time to calculate the total cost of your loan, you may end up snacking on more than you can chew.

Endnote

Once you’ve determined the need for a small business loan, gather the information you need to make an informed decision and get the right loan for your business.